Flex space UK Research | 11


Why you should continue to care about where the flex market will go next?


London has dominated activity, with significant growth over the last five years but there has recently been a noticeable shift into the regional markets.


Demand from SMEs alongside a growing trend for self-employment and remote working in the regional markets, as well as demand from their existing customer base is acting as a pull factor for flex operators into the regions. The key regional cities are benefitting from urbanisation and have become attractive locations in which to live and work.


“ The driver for us is where are the customers rather than where the real estate is. We can always find offices, but you can’t always drum up demand!”


Regional flex operator


The regional markets offer potential for growth, but operators are being selective in where they open new centres. Not every location is economically viable - a suitable location needs to have a critical mass and economic diversity. Consequently, operators are focused on the core regional cities, which have an already established office market with untapped demand.


“ But it costs the same to fit out a site in the regions, same cost to buy a desk and you then don’t get the desk rates.”


London flex operator


Operators seeking to maintain their brand and positioning across their portfolio are finding that the return on investment in the regions is lower than in London. Operating margins are not necessarily tighter, but construction and fit out costs are on a par as operators maintain their product quality. This puts many secondary cities financially out of the reach of some operators. The more established or well capitalised operators can afford to lose money at the outset, as more profitable centres support the wider portfolio, but smaller operations cannot.


At present, there is less competition in the regional cities than in Central London, and this is holding up both desk rates and margins. BE Offices set a record desk rate in Birmingham in part due to the lack of competition but also because it was offering a new product to market. However, the arrival of some of the bigger operators may make it harder for smaller operators to gain a foothold and could hinder future space growth.


Manchester offers the greatest opportunity for the flex sector to expand and by 2023 we estimate that the sector will account for over 6.5% of the office stock, up from 3.5% today. But all the Big 6 cities will see growth, with flex space accounting for an average of 5% of stock in five years’ time.


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